Derivatives in Islamic Finance

Examining the Market Risk Management Framework

Sherif Ayoub

Description

The Islamic finance industry faces the challenging task of attempting to reconcile the risk management demands of business entities with the difficulties posed by the seemingly rigid stance taken by some Shari'ah scholars over hedging practices.

Offering a fresh perspective, Sherif Ayoub confronts the challenge by reformulating how we might think about the theorisation of economic matters in the Islamic faith. He also considers the associated perceptions of permissibility that have until now been confined to the legal sphere, with a focus on contractual elements.

Ayoub sheds light on the way the Islamic finance industry conceptualises the role of financial instruments. Paying particular attention to derivatives in a market risk management framework that adheres to the objectives of Islamic jurisprudence, readers will come to understand the issues surrounding the avoidance of Riba (usury), Gharar (excessive uncertainty) and Maysir (gambling).

6. Permissibility of the Underlying Variables and the Recognition of the ContractI. Permissibility of the Underlying Variables: Interest Rate BenchmarksII. Permissibility of the Underlying Variables: Currency BenchmarksIII. The Nature of Money in IslamIV. Recognition of the Derivative Contract

7. Maysir, Hedging and DerivativesI. A Conceptualisation of Maysir in Islamic and Western ThoughtII. Maysir, Gharar, and the Indeterminacy of the Zero-sum ProhibitionIII. Investment, Speculation, and Gambling: The Environment of Risk ManagementIV. The Role of Financial Intermediaries as Speculators

Derivatives in Islamic Finance

Examining the Market Risk Management Framework

Sherif Ayoub

Author Information

Sherif Ayoub works at Islamic Development Bank with an advisory responsibility over treasury, investments, and the development of the Islamic finance industry.

He acquired his PhD from the University of Edinburgh having been previously educated at Columbia University and Baldwin Wallace University. He has also served as a Visiting Fellow at Harvard University and a Visiting Scholar at INCEIF and IFSB.